At the Intersection of Health, Health Care and Policy

Cite this article as:

J Feder, H L Komisar and M Niefeld
Long-term care in the United States: an overview
Health Affairs, 19, no.3 (2000):40-56

doi: 10.1377/hlthaff.19.3.40

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 L o n g -Te rm Ca r e Sy st em s

Long-Term Care In The

United States: An
Overview
A complex system of public and private funding often leaves
elderly persons at risk of financial catastrophe and inadequate
care.
by Judith Feder, Harriet L. Komisar, and Marlene Niefeld

PROLOGUE: Elderly Americans are just about the only group of

U.S. citizens whose health care is universally insured as an
entitlement. However, elders who need long-term care have
much less protection. Medicare, the federal program for the
elderly and disabled, covers many of the costs of acute medical
care but only tangentially covers some long-term care services.
40 UNITED Medicaid, the federal/state health program, covers long-term
STATES care but only for people who are poor or who become poor
paying for long-term care or medical care. Who gets what kind
of services under Medicaid varies from state to state. This
paper outlines the financing of the U.S. long-term care system
and the policies that define it, pointing to the imperative for
change to assure adequate services at an acceptable cost.
Judith Feder, a political scientist, is dean of policy studies at
Georgetown University in Washington, D.C. In addition to
directing and teaching in the Georgetown Public Policy
Institute, Feder regularly conducts policy research. She served
as principal deputy assistant secretary for planning and
evaluation in the U.S. Department of Health and Human
Services during the first Clinton administration. Harriet
Komisar is an assistant professor at the Georgetown Institute
for Health Care Research and Policy. She was formerly a
principal analyst at the Congressional Budget Office and holds
a doctorate in economics from Cornell. Marlene Niefeld is a
research associate at that institute; she holds a master’s degree
in public policy from Georgetown.

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U N I T E D S T A T E S

ABSTRACT: Although long-term care receives far less U.S. policy attention than
health care does, long-term care matters to many Americans of all ages and
affects spending by public programs. Problems in the current long-term care
system abound, ranging from unmet needs and catastrophic burdens among
the impaired population to controversies between state and federal govern-
ments about who bears responsibility for meeting them. As the population ages,
the pressure to improve the system will grow, raising key policy issues that
include the balance between institutional and noninstitutional care, assurance
of high-quality care, the integration of acute and long-term care, and financing
mechanisms to provide affordable protection.

M
o r e t h a n t w e l v e m i l l i o n p e o p l e in the United
States, about half over and half under age sixty-five, need
some kind of long-term care.1 About a third of these people
have care needs that are substantial. Medicare, the federal govern-
ment’s health insurance program, finances medical care for nearly all
elderly Americans and some younger persons with disabilities. Sup-
port for their long-term care, however, falls largely outside Medi-
care’s scope. Most long-term care is provided by families and friends
in the community. Medicaid, the federal/state program that provides
health insurance for low-income families, is the nation’s primary
safety net for long-term care financing. In 1998 Medicaid financed LONG-TERM 41
about 40 percent of the nation’s total long-term care spending of CARE SYSTEMS
$150 billion and 44 percent of spending on nursing home care.2
Despite some recent improvements, long-term care continues to
pose major challenges: People who need long-term care often do not
get the care they need or prefer, and families’ caregiving and finan-
cial burdens are often heavy. One in five adults with long-term care
needs who live in the community report an inability to get the care
they need, often with serious consequences.3
Policymakers continue to grapple with dissatisfaction in the
scope, mix, quality, and financing of long-term care services. The
availability of publicly supported long-term care varies from state to
state. Despite the growth in home-care services, nursing homes con-
tinue to dominate the service system, and state and federal govern-
ments continually struggle to manage costs of the services they
provide and wrangle over their respective financial responsibilities.
Changing demographics pose a further challenge. Current esti-
mates suggest that the demand for long-term care among the elderly
will more than double in the next thirty years.4 This growth will
exacerbate concerns about balancing institutional and noninstitu-
tional care, assuring quality of care, integrating acute and long-term
care, and—perhaps most important—adopting and sustaining fi-
nancing mechanisms that equitably and adequately protect people
who need long-term care. Alongside policy toward Social Security

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 L o n g -Te rm Ca r e Sy st em s

and Medicare, policy toward long-term care will increasingly shape

quality of life for aging Americans.
This paper begins with an overview of the population who needs
long-term care and the mechanisms used to finance that care, for
both the elderly and the nonelderly populations. We then focus on
the elderly—first examining changing patterns of service use and
their policy implications, then examining policy issues that will
become more problematic as the population ages.
Who Needs Long-Term Care?
Long-term care refers to a broad set of paid and unpaid services for
persons who need assistance because of a chronic illness or physical
or mental disability. Long-term care consists primarily of personal
assistance with activities of daily living (ADLs) or instrumental
activities of daily living (IADLs). ADLs are routine tasks of life,
usually considered to include eating, bathing, dressing, getting into
and out of bed or a chair, and using the toilet. IADLs are additional
activities necessary for independence such as preparing meals, man-
aging medications, and shopping for groceries. Long-term care also
may include skilled and therapeutic care to treat and manage
42 UNITED chronic conditions.
STATES Although the likelihood of needing long-term care rises with age,
almost as many people who need such care are under age sixty-five
as are above it—5.6 million persons under age sixty-five (including
0.4 million children) and 6.6 million elderly, in roughly 1995.5 About
13 percent (0.1 million nonelderly and 1.5 million elderly in 1996)
reside in nursing homes. Of the remainder who live in the commu-
nity, one-quarter (1.2 million ages eighteen to sixty-five and 1.5 mil-
lion elderly) are severely impaired, needing personal assistance with
three or more ADLs.6 Compared with the rest of the population,
persons who need long-term care are disproportionately low-in-
come, very old, and living alone or with relatives other than a spouse
(Exhibit 1). They also incur substantial costs (out of pocket and
Medicare financed) for acute care services.7
Virtually all elderly persons who need long-term care have health
insurance through Medicare. Medicare covers disabled persons un-
der age sixty-five, however, only after they have received Social
Security disability benefits for two years. Only 33 percent of the
home-dwelling population ages eighteen to sixty-four with long-
term care needs have Medicare coverage (Exhibit 2). About half
have either private health insurance (28 percent) or Medicaid (25
percent). Ten percent of the long-term care population in this age
group are uninsured.

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U N I T E D S T A T E S

EXHI B I T 1
Charact eristics Of Home-Dwelling Adult s Wit h Long-Term Care Needs, 1995
Percent
80
Adults with long-term care needs
63
60 59 All adults

42
40
32 30
24 24 24
20
12 13 14
6
0
Income Fair/ poor Age 75 Living Living Living
below poverty health status or older alone with spouse with others

SOURCE: H.L. Komisar and M. Niefeld, “ Long-Term Care Needs, Care Arrangements, and Unmet Needs among Community
Adults: Findings from the National Health Interview Survey on Disability,” Working Paper no. IWP-00-102 (Washington:
Georgetown University, Institute for Health Care Research and Policy, 2000).
NOTES: Persons age eighteen and older. Long-term care need is defined as needing help with at least one activity of
daily living (ADL) or at least one instrumental activity of daily living (IADL). ADLs consist of bathing, dressing, eating,
getting in and out of bed or chair, using the toilet, and walking; IADLs consist of managing money, managing medications,
shopping, preparing meals, light housework, using the phone, and getting to places outside of walking distance.

Long-Term Care Financing

Although most people who need long-term care rely on unpaid help LONG-TERM 43
CARE SYSTEMS
from family and friends, spending on long-term care is substantial.8
The primary sources of financing are Medicaid and out-of-pocket
spending, which accounted for 40 percent and 26 percent, respec-
tively, of national nursing home and home-care expenditures in 1998

EXHI B I T 2
Healt h Insurance Stat us Of Home-Dwelling Adult s Wit h Long-Term Care Needs,
By Age, 1995

Ages 18–64 Age 65 and older

Other Other
None 4% 4%
Medicare and
10%
Private Medicare only Medicaid
28% 16% 20%
Medicare and
Medicaid
13%

Medicaid
Medicare 25%
20% Medicare and private
60%

SOURCE: H.L. Komisar and M. Niefeld, “ Long-Term Care Needs, Care Arrangements, and Unmet Needs among Community
Adults: Findings from the National Health Interview Survey on Disability,” Working Paper no. IWP-00-102 (Washington:
Georgetown University, Institute for Health Care Research and Policy, 2000).
NOTES: N = 5.1 million for both groups. For the nonelderly population, “ Medicare” and “ Medicaid” categories may include
people who have other insurance. For the elderly, “ Medicare only” and “ Medicare and private” may include people who
also have other public (non-Medicaid) insurance. “ Other” includes Indian Health Service, Department of Veterans Af fairs,
and other public insurance programs.

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(Exhibit 3). Two-thirds of long-term care spending is for nursing

home care, 44 percent of which was funded by Medicaid and 31
percent through out-of-pocket spending in 1998.
n Medicare. Medicare finances long-term care only tangentially
through its limited skilled nursing facility (SNF) and home health
benefits. Despite recent growth in spending on these benefits, much
of the SNF and home care paid for by Medicare remains short-term
rehabilitative care, often related to a hospital stay or outpatient
procedure. Medicare covers SNF care for up to 100 days following a
hospital stay of at least three days. For homebound persons needing
part-time skilled nursing care or physical or other therapy services,
Medicare pays for home health care, including personal care services
provided by home health aides.
n Medicaid. Medicaid is explicitly responsible for financing
long-term care for persons with low incomes and persons who be-
come poor (“spend down”) as a result of spending on medical or
long-term care. Medicaid provided 44 percent of nursing home
spending in 1998. Medicaid supports care, in part or in full, for about
two-thirds of all nursing home residents.9 In addition, Medicaid
allows states to cover personal care at home, regardless of whether
44 UNITED skilled care is needed; Medicare does not.
STATES Federal rules entitle elderly and disabled persons to Medicaid
benefits if their incomes and assets are low enough to qualify them
for the federal Supplemental Security Income (SSI) cash assistance
program—in 2000, income of no more than $532 per month, and
nonhousing assets less than or equal to $2,000 for individuals.10
Most states allow people to become eligible under “medically needy”
provisions if they spend down their income and assets on care. For
nursing home care, even states without medically needy coverage

EXHI B I T 3
Long-Term Care Financing, By Payer, 1998

Tot al nursing home and home care expendit ures Nursing home expenditures
($150 billion) ($100 billion)
All other All other
Private insurance 7% 5%
8% Private insurance Medicaid
7% 44%
Out of pocket Medicaid
26% 40%
Out of pocket
31%

Medicare
20% Medicare
14%
SOURCES: Authors’ estimates based on data from Health Care Financing Administration, Of fice of the Actuary (February
2000); and B. Burwell, “ Medicaid Long-Term Care Expenditures in FY 1998” (Cambridge, Mass.: MEDSTAT Group, 1999).

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must cover nursing home residents with incomes of up to three

times the SSI level. Institutionalized persons must contribute all of
their income except a small personal needs allowance (ranging
among states from $30 to $75 per month in 1996) toward the cost of
care.11 When one spouse lives at home while the other is institution-
alized, the community-living spouse is allowed higher income and
asset levels, which vary by state.
States have flexibility in designing their long-term care programs
and controlling access. First, states determine their own eligibility
levels. Second, although states must cover home health services,
they have the option of providing personal care and may provide
such care through programs that “waive” certain generally applica-
ble federal requirements. Specifically, they can (and do) establish
limits on the total number of persons enrolled (regardless of eligibil-
ity) and target programs to selected areas or population groups.
Third, states can (and do) directly regulate the supply of nursing
home beds. In addition, states control the rates paid to nursing
homes for Medicaid beneficiaries, which can affect access.12
States’ different choices produce large variation in Medicaid long-
term care spending.13 In federal fiscal year 1998 Medicaid spending
on long-term care (for all ages) ranged from less than $120 per state LONG-TERM 45
resident in five states to more than three times that level in the top CARE SYSTEMS
four states and the District of Columbia. 14
n Private insurance. About 7 percent of long-term care spend-
ing is financed by private insurance—a combination of health and
the relatively new long-term care insurance. Although the number
of people buying private long-term care insurance is growing, as of
the end of 1996 fewer than five million policies had been sold.15
n Out-of-pocket spending. The fact that more than a quarter of
long-term care costs are paid directly by patients reflects the financ-
ing structure described above: the absence of an insurance system,
public or private, that spreads the financial risk of needing long-
term care, and, in its place, a system that protects people only if they
are impoverished. Given the high costs of long-term care—on aver-
age more than $40,000 annually for nursing home care, and for the
severely impaired (three or more ADLs), on average more than $500
per month for home care (or $6,000 annually)—persons needing to
purchase such care face a substantial financial burden.16
Out-of-pocket expenses are only part of long-term care’s full bur-
den on families. A 1996 survey of unpaid caregivers age fifty or older
found that among caregivers who work or had worked, many made
adjustments in their work schedules, worked fewer hours, or retired
early or quit, and that 15 percent of respondents experienced physi-
cal or mental problems resulting from their caregiving.17

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Use Of Long-Term Care By The Elderly

Although the pattern of service use among the elderly in the mid-
1990s was largely similar to past patterns, surveys comparing the
mid-1990s with the mid-1980s found two shifts: a reduced use of
nursing homes and, if at home, a higher likelihood of receiving paid
help. These changes are consistent with a policy goal of substituting
home care for nursing home care. However, a closer look at experi-
ence calls into question whether paid home care has truly substi-
tuted for nursing home care, whether service levels are adequate,
and whether greater support for home care will continue.
n Changes in service use. A comparison of surveys shows that
4.2 percent of the elderly population resided in nursing homes in
1995, compared with 4.6 percent in 1985.18 This means that about a
quarter-million elderly persons who, based on age and sex, would
have been in nursing homes in 1985 were not in nursing homes in
1995. Nursing home residents and stays also looked different in 1995:
Residents were older and more severely impaired, and stays were
shorter and more likely to be financed by Medicare (13 percent in
1995, compared with 2 percent in 1985).
Survey data show changes in home-care use by the elderly over
46 UNITED
STATES
roughly the same period. The proportion of home-dwelling elderly
persons with long-term care needs depending only on family and
friends for assistance fell from 74 percent in 1982 to 64 percent in
1994, and from 66 percent to 50 percent among persons dependent
in three or more ADLs.19 At the same time, elderly persons receiving
paid care averaged fewer paid hours per week.
These patterns reflect changes in the health and long-term care
system and its financing. Shorter hospital stays and technological
advances have led some hospital care to be replaced by short-stay
nursing home care, or acute care–related home health services. Less
nursing home use may be related to increased use of supportive
housing arrangements (assisted living).20 But most residents are much
less impaired than the typical nursing home resident, so it is unlikely
that supportive housing substitutes for much nursing home care.
Perhaps far more important, financing for home care has ex-
panded. A loosening of Medicare rules in the late 1980s expanded
the delivery of home health care, both personal care and skilled care.
Medicare spending for home health grew from just under $4 billion
in 1990 to more than $18 billion in 1996.21 Although evidence sug-
gests that the expanded service involved acute care–related as well
as long-term personal care, spending growth went disproportion-
ately to the small fraction of users receiving extensive home care
(increased spending for Medicare home health users receiving 200

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or more visits during the year accounted for about 60 percent of the
total growth in spending between 1991 and 1994).22 There also is
evidence that Medicare assisted a greater share of elderly beneficiar-
ies with long-term care needs—between 1982 and 1994 the propor-
tion of those with (paid or unpaid) home care who received Medi-
care-financed help during the previous week rose from 4 percent to
10 percent.23 Medicaid spending for home care for low-income per-
sons (of all ages) also rose during the 1990s, from $4.8 billion in FY
1991 to $10.5 billion in FY 1996 (and to $14.8 billion in FY 1998).24
Since the mid-1990s, however, Medicare policy has changed once
again. The Balanced Budget Act (BBA) of 1997 created incentives for
home health agencies to limit the volume of care—in particular, for
patients needing the most care.25 Spending growth dropped sharply.26
However, the impact on patterns of use is not yet known.
n Policy implications. A lower probability of nursing home use
and an expansion of Medicare home health are consistent with but
by themselves not evidence of a policy preference for home care over
nursing home care for people in need of services. Changes in pat-
terns of care raise a number of important policy questions regarding
the adequacy of care and the policy process that shapes it.
Although some data are available to reveal changes in service use, LONG-TERM 47
experts emphasize the absence of data and analysis to show that CARE SYSTEMS
impaired persons who might previously have entered nursing homes
are actually receiving adequate care.27 Concern about adequacy of
service stems from evidence on Medicare’s limited reach among the
impaired population and of care needs that go unmet. Near the
height of Medicare’s home health expansion, in 1994, only 10 percent
of impaired elderly persons who received assistance at home re-
ported receiving Medicare-financed home care during the prior week.28
(A smaller proportion, 3 percent, received Medicaid-financed home
care.) Further, average weekly hours of paid care per recipient fell
between 1982 and 1994, especially among those with home care
financed from “program sources” (such as Medicare, Medicaid, and
private insurance). This decline suggests that although Medicare may
have come to serve more people, its benefits are more limited than
those Medicaid may previously have provided.29
Concern about the limited use of paid services is compounded by
evidence on how many elderly persons go without care. Results
from a national survey indicate that nearly one-fifth of home-dwell-
ing elderly with long-term care needs, in roughly 1995, reported
needing help, or more help, with ADLs or IADLs.30 Respondents
attribute these unmet needs to finding services too expensive, hav-
ing difficulty finding help, or being ineligible for help from an agency
because of income or medical eligibility criteria. Among community-

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“Medicare and Medicaid policy resembles a fiscal tug-of-war,

rather than a concerted effort to address people’s needs.”

dwelling elderly with long-term care needs, persons reporting un-

met need are disproportionately severely impaired, living alone, and
poor or near-poor.
A second concern is the way in which current Medicare and
Medicaid long-term care policy is being made. The Medicare home
health expansion largely reflected the withdrawal rather than the
introduction of policy guidance. No decision was made to rely upon
Medicare to finance an expansion of long-term care, and many ques-
tion the targeting of its benefits (based on a need for skilled care
without regard for personal care needs) as well as the efficiency of
its delivery system (reliance on agencies).31
Similarly, the retractions in service stimulated by the BBA’s
changes in home health payment policy may be poorly targeted.
Although the policy change was intended to promote efficiency, it
may replace incentives to provide what may have been too much
care with what may be too little.32 In reviewing recent evidence, the
48 UNITED
STATES
Medicare Payment Advisory Commission (MedPAC) concluded
that some beneficiaries who require costly home care are facing
difficulties obtaining services.33 There is little professional consen-
sus on norms of care under Medicare’s home health benefit—an
issue that reflects both the design of the benefit (skilled over per-
sonal care) and the complexity of evaluating the “appropriate”
amount of personal care. In the absence of such norms, a shift to
incentives for agencies to spend as little as possible would seem to
put the patients who need the most care at greatest risk.
Medicare and Medicaid policy resembles a fiscal tug-of-war,
rather than a concerted effort to address people’s needs. Medicare’s
expansion of home health benefits offered states an opportunity to
“shift” responsibility to Medicare—that is, allow the program to
finance care that states might otherwise provide. Analysis suggests
that some states (with relatively high Medicaid home-care spend-
ing) adopt policies to assure that Medicare revenues are “maxi-
mized”—explicitly shifting financing for some services from the
Medicaid program, for which states share financial responsibility, to
the fully federal Medicare program.34
What will happen to these and other home care services as Medi-
care shrinks? Medicare’s expansion may have filled needs for home
care in states with more limited Medicaid coverage. It is not clear
that Medicare’s retraction will be offset by Medicaid growth.

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Medicaid is targeted to the poorest population; many persons who

are not very poor nevertheless cannot afford paid help. Further,
states have always varied in the generosity of their Medicaid home-
care benefits and will undoubtedly vary in their willingness to fill
the possible service gaps. Hence, Medicare changes will likely re-
duce access to care for some persons with long-term care needs.
Current And Future Policy Choices
Both the outcomes and the process of U.S. long-term care policy
have serious shortcomings, and the consequences of these short-
comings will increase as the population ages. Policymakers continue
to face an array of complex policy problems regarding the balance
between nursing home and home care, assurance of quality, inte-
grating acute and long-term care, and affordable access.
n Improving the nursing home/home care balance. Despite
Medicare’s home health expansion, Medicaid continues to dominate
long-term care spending, and institutional care continues to domi-
nate Medicaid services, accounting for three-quarters of Medicaid
long-term care spending in FY 1998.35 States have struggled for years
to reduce nursing home use, by limiting nursing home care (through
preadmission screening, limits on the supply of nursing home beds, LONG-TERM 49
and constraints on growth in Medicaid payments) on the one hand, CARE SYSTEMS
and expanding home care (primarily through “waivers” of Medicaid
requirements, allowing states to target benefits to limited geo-
graphic areas and to specific groups and numbers of beneficiaries)
on the other. However, in most states policy initiatives have had a
modest impact on the allocation of resources between nursing
homes and home and community-based care.36
The continued emphasis on nursing homes over home care re-
flects in part a reluctance to expand support for home care as an
add-on to, rather than a replacement for, current institutional care.
Although home care can (and does) substitute for nursing home
care, enhanced public support for home care will likely expand the
total number of persons receiving care. Many who would resist
going to nursing homes may welcome care at home. Indeed, improv-
ing quality of life for individuals and families struggling to maintain
care at home is as much a goal of home care as is reducing nursing
home use. Nevertheless, the result is that broader support for home
and community-based care will raise, not lower, costs.
A few states—most notably, Oregon, Washington, and Wiscon-
sin—stand out for efforts to avoid this outcome by explicitly limit-
ing the use of nursing homes—that is, moving people and dollars out
of nursing homes and into home and community-based care. How-
ever, control over spending levels not only required limits on nurs-

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ing home use; it also required limits on the availability of home care
that in some cases created waiting lists for care. Also, despite fairly
dramatic reductions in nursing home use (especially in Oregon),
total long-term care spending continued to rise.37 All told, it may be
difficult to achieve a better balance across services without expand-
ing overall investment in long-term care. Willingness to make that
investment, however, is at best uncertain.
n Quality assurance. Despite reform of nursing home regulation
more than a decade ago, recent reports to Congress indicate that
about a quarter of the more than 17,000 nursing homes nationwide
still have serious deficiencies.38 About 40 percent of those homes
have had repeated deficiencies.39 Such poor performance is attrib-
uted to insufficient attention to and support for federal and state
enforcement activities.40 Both levels of government have stepped up
activities as a response to public criticism, but concerns remain.
Nursing home payment policy also can influence quality of care.
Although higher payment does not ensure higher quality, payment
rates can be too low to support adequate quality. The BBA repealed
requirements limiting states’ flexibility in setting nursing home
rates. To date, states have not responded with major changes in
50 UNITED nursing home payment, but inaction may be a reflection more of
STATES economic prosperity than of comfort with payment methods and
rates. In the coming years decisions on how much and how nursing
homes are paid (by Medicare as well as Medicaid) will be critical in
establishing incentives or disincentives to provide high-quality
care.41 Although nursing home quality assurance is problematic, as-
surance of quality outside the nursing home has barely begun. As-
suring the quality of care at home has historically been regarded as
challenging because of the numerous sites of care, potential isolation
and vulnerability of persons receiving care, and the lack of informa-
tion on the relationship between services and outcomes. Supportive
housing arrangements raise another set of quality assurance issues.
Board-and-care homes for low-income persons receive barely more
than subsistence payments and fall outside both federal and many
states’ regulatory scope. Assisted-living facilities, although better
paid, fall outside about half the states’ regulatory frameworks and
offer providers a potential escape from nursing home regulation.42
Enhancing the effectiveness of quality tools and extending their
reach will remain a considerable challenge for policymakers.
n Integrating acute and long-term care. People in need of care
are clearly frustrated by the challenge of coordinating different
types of services across different programs—specifically, Medicare,
which finances acute medical care, and Medicaid, which finances
long-term care. Better integration across services and programs

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could reduce this burden and improve both the quality and the
efficiency of care. However, there is much more rhetoric than reality
to “service integration.” Its promotion, especially through reliance
on capitation (a single payment per user to cover all services) rather
than fee-for-service, reflects a continued quest for cost containment,
at least as much as it does a pursuit of high-quality care.
To date, experience with capitation, even for acute care for the
elderly, is limited. Medicare managed care now covers about 17 per-
cent of beneficiaries.43 Limited evidence on its performance, relative
to fee-for-service, has raised quality concerns—generally, regarding
outcomes for persons with chronic conditions; specifically, regard-
ing reduced use and worse outcomes related to home health care
and rehabilitation facilities.44 Medicare also has promoted the devel-
opment of new managed care arrangements that include long-term
care, which have recently been adopted as provider options. Al-
though demonstration projects provide some evidence of more effi-
cient service delivery, there is concern about the ability to replicate
these models and attract enrollees. 45
Medicaid managed care focuses on acute care for the low-income
population under age sixty-five.46 A capitation payment including
acute and long-term care for the elderly requires the “integration” of LONG-TERM 51
Medicaid and Medicare and a negotiated arrangement between the CARE SYSTEMS
state and federal governments. Both the states and the federal gov-
ernment have been cautious in pursuing these arrangements—
states, uncertain about the capacity of organizations, including
commercial managed care plans, to take on responsibility for long-
term care; the federal government, generally unwilling to allow states
to require beneficiaries to participate in managed care and con-
cerned about giving states control over the use of Medicare dollars.
Although states have been cautious in assuming that managed
care can be applied to long-term care, interest in the concept reflects
factors other than efficient delivery of high-quality care. Capitation,
especially combining Medicare with Medicaid dollars, offers states
financial advantages: the opportunity to control dollars that the
federal government now manages and, through fixed capitated pay-
ment, to limit liabilities for service. Pursuit of those advantages
without evidence that care is truly managed would place the most
vulnerable beneficiaries at considerable risk.
n Expanding insurance for long-term care. Theoretically,
there is little rationale for failing to finance long-term care as we
finance acute care—that is, relying on insurance to spread its risk.
We typically rely on insurance to deal with costs that are potentially
catastrophic and unpredictable. Long-term care satisfies both crite-
ria. Purchasing extensive personal care, at home as well as in nursing

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homes, is a catastrophic expense. Further, the probability that a

given person will need long-term care is uncertain. For example,
although 39 percent of persons at age sixty-five are likely to use
some nursing home care before they die, almost half will require less
than a year of care, while about a fifth will require five years or
more.47 Public discussion all too often assumes that a need for long-
term care is an inevitable part of aging and that saving is therefore
the right strategy to address it. With costs so varied and unpre-
dictable, savings will be inadequate and inefficient. Insurance makes
more sense.
The U.S. long-term care system, however, does not provide insur-
ance against the risk of long-term care costs. As described above, the
private insurance market is small, and (public) Medicare explicitly
limits coverage for long-term care. Medicaid provides support that
is critical to persons who need long-term care, but that support is
available only after all other resources have been exhausted. Thus,
even with Medicaid, risks are concentrated, not spread.
Some argue that with supportive public policies—notably, subsi-
dies through the tax system—the private insurance market could
spread the risk of long-term care costs, thereby reaching a much
52 UNITED larger portion of the population and greatly reducing burdens on the
STATES public sector.48 Recent estimates by the American Council of Life
Insurance are that private insurance could grow to finance 29 per-
cent of nursing home costs in 2030, ten times their estimate of 3
percent today.49 However, reliance on private insurance to address
future long-term care needs raises critical policy questions.
The first question is the adequacy of protection. Observed inade-
quacies are numerous: market practices that make policies unavail-
able to those most likely to need long-term care; benefits that cover
only a portion of the costs of care and are not guaranteed to keep
pace with rising costs or changing practices of care; and the possi-
bility of unanticipated premium increases (even with policies that
promise the same premium for the life of the policy). These features
of private insurance, which reflect insurers’ incentives to limit risk,
create a barrier to risk spreading that is also apparent in the private
individual health insurance market. The nation’s continued dissatis-
faction with this market should generate skepticism about the wis-
dom of following a similar path for long-term care.
A second question is whether tax support for private insurance
represents an equitable use of public resources. Tax subsidies are far
more likely to reach persons already able to purchase long-term care
insurance, rather than those who cannot afford it. Analysis by the
Congressional Budget Office (CBO) suggests that the latter group
will grow in the coming decades. Further, it suggests that even with

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an expansion of long-term care insurance, Medicaid spending must

increase—from $43 billion estimated for 2000 to $75 billion for
2020—to ensure even current levels of service to low- and medium-
income people (Exhibit 4). Proponents of tax subsidies for private
insurance argue that the need for public investment would be even
greater in the absence of support for private insurance—the CBO
estimates that without any private long-term care insurance,
Medicaid long-term care spending would rise to $87.8 billion in
2020. However, to accept that argument is to assume that invest-
ment in public and private support will go hand in hand. In practice,
advocacy of subsidies for private insurance is more likely to obscure
the need to strengthen direct public support. The result would be to
target resources to the economically advantaged while leaving the
disadvantaged at risk.
Expanded social insurance is an alternative to public support for
private insurance. For example, Medicare could be expanded to
include long-term care, entitling all Americans, regardless of in-
come, to some insurance protection should they become greatly
impaired. However, investment of resources to sustain the social
insurance we have (Medicare and Social Security), let alone the
social insurance we might have, is subject to considerable debate. LONG-TERM 53
Despite the nation’s current prosperity and underlying wealth, our CARE SYSTEMS
willingness to redistribute resources to reflect the aging of the
population seems to be in question.50
In these circumstances, better support for the economically dis-
advantaged—a more adequate means-tested safety net—should be
our priority. We now expect people to impoverish themselves com-

EXHI B I T 4
Projected Spending On Long-Term Care For The Elderly, By Payer, 2000 And 2020
Billions of 2000 dollars
100
a
2000
b
75 75 2020

50 51
43 43 43
29 36
25

5
0
Medicare Medicaid Out of pocket Private insurance

SOURCE: Congressional Budget Office, “ Projections of Expenditures for Long-Term Care Services for the Elderly”
(Washington: CBO, March 1999).
NOTE: For each year, total spending includes less than $5 billion in spending by “ other payers” (not shown).
a Total spending: $123.1 billion.
b Total spending: $207.3 billion.

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pletely before providing them assistance with long-term care. That

system seems excessively harsh. Further, it is geographically inequi-
table and will become more so as the population ages. Analysis of
future population growth and resources reveals that growth in the
demand for long-term care and the ability to finance it will vary
greatly across states.51 To create a stronger, more fair safety net will
therefore require not just more dollars, but more federal dollars.

This paper was presented at the Commonwealth Fund’s 1999 International Sym-
posium on Health Care Policy, entitled “Financing, Delivering, and Ensuring
Quality of Health and Long-Term Care for an Aging Population,” in Washington,
D.C., 20–22 October 1999. The Commonwealth Fund supported the preparation of
this paper. The authors gratefully acknowledge the analytic contributions of Mark
Merlis and reviewers and the research support of Donald Jones. The views ex-
pressed here are those of the authors and should not be attributed to the Common-
wealth Fund or its directors, officers, or staff.

NOTES
1. H.L. Komisar and M. Niefeld, “Long-Term Care Needs, Care Arrangements,
and Unmet Needs among Community Adults: Findings from the National
Health Interview Survey on Disability,” Working Paper no. IWP-00-102
54 UNITED (Washington: Georgetown University, Institute for Health Care Research and
STATES Policy, 2000); M. Adler, “People with Disabilities: Who Are They?” (Unpub-
lished tabulations from the 1994 National Health Interview Survey, Phase I,
November 1996); and N.A. Krauss and B.M. Altman, Characteristics of Nursing
Home Residents—1996, MEPS Research Findings no. 5 (Rockville, Md.: Agency
for Health Care Policy and Research, December 1998).
2. Estimates based on national health expenditures data, adjusted to include
estimated hospital-based nursing home and home health services and Medic-
aid services provided under home and community-based waivers, which are
not included in the nursing home and home health categories. Health Care
Financing Administration, Office of the Actuary, available online at
www.hcfa.gov/stats/ nhe-oact/tables/Tables.pdf (accessed 22 February 2000);
B. Burwell, “Medicaid Long-Term Care Expenditures in FY 1998” (Cambridge,
Mass.: MEDSTAT Group, 1 April 1999); and unpublished data from HCFA
Office of the Actuary (February 2000).
3. Komisar and Niefeld, “Long-Term Care Needs.”
4. Congressional Budget Office, “Projections of Expenditures for Long-Term
Care Services for the Elderly” (Washington: CBO, March 1999).
5. Komisar and Niefeld, “Long-Term Care Needs”; Adler, “People with Disabili-
ties”; and Krauss and Altman, Characteristics of Nursing Home Residents.
6. Komisar and Niefeld, “Long-Term Care Needs.”
7. Among noninstitutional elderly Medicare beneficiaries, an estimated 40 per-
cent of those with ADL limitations had out-of-pocket health care spending in
excess of $4,000 in 1997, compared with 14 percent of all. L. Alecxih, unpub-
lished analysis (Falls Church, Va.: Lewin Group, March 1999). For Medicare
spending by ADL status, see J. Feder and J. Lambrew, “Why Medicare Matters
to People Who Need Long-Term Care,” Health Care Financing Review (Winter
1996): 99–112.
8. K. Liu, K.G. Manton, and C. Aragon, Changes in Home Care Use by Older People with

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Disabilities: 1982–1994 (Washington: AARP, Public Policy Institute, January 2000).

9. Krauss and Altman, Characteristics of Nursing Home Residents.
10. A. Schneider, K. Fennel, and P. Keenan, “Medicaid Eligibility for the Elderly,”
Kaiser Commission on Medicaid and the Uninsured (Washington: Henry J.
Kaiser Family Foundation, May 1999); and Social Security Administration, “A
Desktop Guide to SSI Eligibility Requirements,” SSA Pub. no. 05-11001 (Janu-
ary 2000).
11. M. Merlis, “Financing Long-Term Care in the Twenty-first Century: The Pub-
lic and Private Roles,” Pub. no. 343 (New York: Commonwealth Fund, Sep-
tember 1999).
12. J.M. Wiener and D.G. Stevenson, “Long-Term Care for the Elderly and State
Health Policy,” New Federalism: Issues and Options for States, no. A-17
(Washington: Urban Institute, November 1997).
13. Merlis, “Financing Long-Term Care.”
14. Burwell, “Medicaid Long-Term Care Expenditures.”
15. S. Coronel, “Long-Term Care Insurance in 1996” (Washington: Health Insur-
ance Association of America, September 1998).
16. American Health Care Association, Facts and Trends: The Nursing Facility Source-
book, 1997 ed. (Washington: AHCA, 1997); and Liu et al., “Changes in Home
Care Use.”
17. National Alliance for Caregiving and AARP, Family Caregiving in the U.S.: Findings
from a National Survey (Bethesda, Md.: NAC and AARP, 1997).
18. C.E. Bishop, “Where Are the Missing Elders? The Decline in Nursing Home
Use, 1985 and 1995,” Health Affairs ( July/Aug 1999): 146–155.
19. Liu et al., “Changes in Home Care Use.”
20. C. Hawes, M. Rose, and C.D. Phillips, A National Study of Assisted Living for the LONG-TERM 55
Frail Elderly—Executive Summary: Results of a National Survey of Facilities (Washing- CARE SYSTEMS
ton: Department of Health and Human Services, Office of the Assistant Secre-
tary for Planning and Evaluation, 26 April 1999).
21. H.L. Komisar and J. Feder, “The Balanced Budget Act of 1997: Effects on
Medicare’s Home Health Benefit and Beneficiaries Who Need Long-Term
Care” (New York: Commonwealth Fund, February 1998).
22. Ibid.
23. Liu et al., “Changes in Home Care Use.”
24. Burwell, “Medicaid Long-Term Care Expenditures.”
25. Komisar and Feder, “The Balanced Budget Act of 1997.”
26. Growth in home health spending declined from 28.2 percent in 1990 to –4
percent in 1998. Medicare spending for home health care delivered by free-
standing home health agencies fell 12.9 percent in 1998. See K. Levit et al.,
“Health Spending in 1998: Signals of Change,” Health Affairs ( Jan/Feb 2000):
124–132.
27. Bishop, “Where Are the Missing Elders?”
28. Liu et al., “Changes in Home Care Use.” These rates may understate the
proportion who use Medicare home health at any time during the year. Other
research found that 24 percent of elderly Medicare beneficiaries needing help
with one or more ADLs received Medicare home health services in 1992. H.L.
Komisar, J.H. McCool, and J. Feder, “Medicare Spending for Elderly Benefici-
aries Who Need Long-Term Care,” Inquiry (Winter 1997/98): 302–310.
29. Liu et al., “Changes in Home Care Use.”
30. Komisar and Niefeld, “Long-Term Care Needs.”
31. U.S. General Accounting Office, Medicare: Home Health Utilization Expands while
Program Controls Deteriorate, Pub. no. GAO/HEHS-96-16 (Washington: GAO,
1996).
32. Komisar and Feder, “The Balanced Budget Act of 1997.”

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33. Medicare Payment Assessment Commission, Report to Congress: Medicare Pay-

ment Policy (Washington: MedPAC, March 2000).
34. G. Kenney, S. Rajan, and S. Soscia, “State Spending for Medicare and Medicaid
Home Care Programs,” Health Affairs ( Jan/Feb 1998): 201–212.
35. Skilled nursing facilities (SNFs) and intermediate care facilities (ICFs) for
persons with developmental disabilities accounted for 58 percent and 17 per-
cent, respectively. Burwell, “Medicaid Long-Term Care Expenditures.”
36. C.M. Murtaugh et al., “State Strategies for Allocating Resources to Home and
Community-Based Care” (New York: Center for Home Care Policy and Re-
search, Visiting Nurse Service of New York, September 1999).
37. J.M. Wiener, “Can Medicaid Long-Term Care Expenditures for the Elderly Be
Reduced?” (New York: Commonwealth Fund, 1996); and GAO, Long-Term
Care: Current Issues and Future Directions, Pub. no. GAO/HEHS-95-109 (Washing-
ton: GAO, 1995).
38. C. Hawes, “Nursing Home Quality Assurance: What System?” (Presentation
at Commonwealth Fund Conference on Quality of Care in Nursing Homes:
Now and the Future, Washington, D.C., 29 July 1999); and GAO, Nursing
Homes: Additional Steps Needed to Strengthen Enforcement of Federal Quality Standards,
Pub. no. GAO/HEHS-99-46 (Washington: GAO, 1999).
39. GAO, Nursing Homes.
40. T. Edelman, “What Happened to Enforcement?” Nursing Home Law Letter, nos.
1–2 (13 February 1999).
41. B. Manard, “The New Medicare Payment System for Skilled Nursing Facili-
ties: A Primer Regarding Key Issues and Options” (New York: Common-
wealth Fund, forthcoming).
56 UNITED 42. Coleman, “New Directions for State Long-Term Care Systems.”
STATES 43. GAO, Medicare Managed Care Plans: Many Factors Contribute to Recent Withdrawals;
Plan Interest Continues, Pub. no. GAO/HEHS-99-91 (Washington: GAO, 1999).
44. J.E. Ware et al., “Differences in Four-Year Health Outcomes for Elderly and
Poor, Chronically Ill Patients Treated in HMO and Fee-for-Service Systems,”
Journal of the American Medical Association 276, no. 13 (1996): 1039–1047; P.W.
Shaughnessy, R.E. Schlenker, and D.F. Hittle, “Home Health Care Outcomes
under Capitated and Fee-for-Service Payment,” Health Care Financing Review 16,
no. 1 (1994): 187–222; and S.M. Retchin et al., “Outcomes of Stroke Patients in
Medicare Fee-for-Service and Managed Care,” Journal of the American Medical
Association 278, no. 2 (1997): 119–124.
45. A.J. White, The Effect of PACE on Costs to Medicare: A Comparison of Medicare
Capitation Rates to Projected Costs in the Absence of PACE (Cambridge, Mass.: Abt
Associates, May 1998); and J.M. Wiener and J. Skaggs, Current Approaches to
Integrating Acute and Long-Term Care Financing and Services, Report no. 9516 (Wash-
ington: AARP Public Policy Institute, 1995).
46. Arizona’s Medicaid program has never offered anything except capitated pay-
ment for long-term care. Feder and Lambrew, “Why Medicare Matters.”
47. C. Murtaugh et al., “The Amount, Distribution, and Timing of Lifetime Nurs-
ing Home Use,” Medical Care 35 no. 3 (1997): 204–218.
48. Such policies include the recently enacted “clarification” of tax policy, under
which long-term care policies are deductible from taxable income, as are
health policies. A proposal to expand deductibility to anyone purchasing a
long-term care policy is in the tax bill that Congress passed in summer 1999.
49. Merlis, “Financing Long-Term Care.”
50. R.B. Friedland and L. Summer, Demography Is Not Destiny (Washington: Na-
tional Academy on an Aging Society, January 1999).
51. Merlis, “Financing Long-Term Care.”

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